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PART 3: Outlook for later stage capital

on January 12 th, 2016 by Tom Ballard

(EDITOR’S NOTE: For past three years, we have asked individual fund managers in our East Tennessee region to share with us their thoughts on the year that just ended and the year ahead. This is the third article in a six-part series. We thank the participating individuals for their input.)

TODAY’S QUESTION: Access to later stage capital has been a recurring theme in this annual series. Are you seeing any progress on this front in the region? Depending on your answer, is addressing this issue becoming more critical for later stage start-ups?

David Belitz, Partner, Chattanooga Renaissance Fund – I do believe that progress has been made on attracting later stage capital. LaunchTN deserves a shout out here for the great work they have done connecting Tennessee and the Southeast to investors on the Coast and in the Northeast. I also think that events such as 36|86, “Start-up Week” in Chattanooga and “Start-up Day” in Knoxville are exposing more outside capital to the opportunities available in Tennessee. Having said that, it is still tough to raise a Series A round in the Southeast. I think if you are a start-up or angel investor, you must start seeking out your lead Series A investor as soon as you close your angel round. Connecting with venture firms, finding out what there criteria are, and driving toward hitting their metrics are critical. Otherwise, companies should plan to self-fund growth.

Eric Dobson, Chief Executive Officer, Angel Capital Group – I believe we are seeing growth in later stage funds. Most of the original TNInvestcos have raised new funds. This will be THE issue for 2016 and 2017. I am optimistic that we will see new, large, regional funds in the state in 2016.

Kristina Montague, Managing Partner, The JumpFund – This is definitely still a critical issue for our region. Also access to high quality tech talent as companies grow and mature. We have several new later stage funds developing in Chattanooga, but our region should continue to work on partnerships with VC capital on the Coasts as our companies need access to both later stage capital and talent.

Geoff Robson, President, The Lighthouse Fund – Later stage capital (Series A and beyond) is always inherently more difficult to obtain due to larger round sizes and the fact that there is no fund here locally that is focused on this. It is critical to do two things: plan for the appropriate amount of time to acquire capital and hit the appropriate milestones to attract it. This is a very critical part of the process for all high growth companies.

Grady Vanderhoofven, Fund Manager, Meritus Ventures – I don’t see much progress on this front in our region, and I do believe this is a critical gap in the capital continuum in this region. There are a number of active and successful later stage investors in Tennessee and the broader region, and some companies have been able to attract capital from outside of the region, so it would be incorrect to assert that there is a total absence of later stage capital in the region. Partly because of our awareness of the capital gap, we are engaged in an effort to establish a new growth capital investment vehicle (Meritus Kirchner) in the region. I have not, however, observed an increase in the number of later stage investors or the amount of later stage capital in this region in general.

Ken Woody, President, Innova Memphis – I’m not seeing much improvement in later stage capital investment IF the companies stay in state. As much as I hate to say it, most companies who have found later round of investment have left the area as they grow. Good for the companies but bad for Tennessee.